"...there is no point in helping poor countries with corrupt leaders, because they will 'do a Mobutu'and waste the money. This view is reflected in the World Bank's recent anti-corruption drive, under the leadership of former US deputy defence secretary Paul Wolfowitz, who declared: 'The fight against corruption is a part of the fight against poverty, not just because corruption is wrong and bad but because it really retards economic development'. During Wolfowitz leadership, from July 2005 to June 2007, the World Bank loan disbursements to several developing countries on grounds of corruption.

"Corruption is a big problem in many developing countries. But the Bad Samaritans are using it as a convenient justification for the reduction in their aid commitments, despite the fact that cutting aid will hurt the poor more than it will a country's dishonest leaders, especially in the poorst (sic) countries (which tend to be more corrupt...). Moreover, they are increasingly using corruption as an 'explanation' for the failures of the neo-liberal policies that they have promoted over the past two and a half decades. Those policies have failed because they were wrong, not because they have been overwhelmed by local anti-developmental factors, like corruption or 'wrong' culture, contrary to what is becoming increasingly popular to argue among the Bad Samaritans.

Does corruption hurt economic development?

"Corruption is a violation of the trust vested by its 'stakeholders' in the holders of offices in any organization, be it a government, a corporation, a trade union or even an NGO (non-governmental organization).

"Life would be a simpler if morally objectionable things like corruption also had unambiguously negative economic consequences. But the reality is a lot messier..."

"... corruption is not just a 20th-century phenomenon. Most of today's rich countries successfully industralised despite the fact that their public life was spectacularly corrupt.* In Britain and France, the open sale of public offices (not to speak of honours) was a common practice at least until the 18th century. In Britain, until the early 19th century, it was considered perfectly normal for ministers to 'borrow' their departmental funds for personal profit.

* Their corruption was such that the very definition of corruption was different from what prevails today. When he was accused of corruption in Parliament in 1730, Robert Walpole freely admitted that he had great estates and asked: 'having held the most lucrative offices for nearly 20 years, what could anyone expect, unless it was a crime to get estates by great office'. He turned the tables on his accusers by asking them, 'how much greater a crime it must be to get an estate out of lesser offices'. See Nield (2002), Public Corruption - The Dark Side of Social evolution (Anthem Press, London), p. 62.

"The electoral process was also spectacularly venal. In Britain, bribery, 'treating'(typically done by giving free drinks in party affiliated public houses), promises of jobs and threats to voters were widespread in elections until the Corrupt and Illegal Practices Act of 1883. Even after the Act, electoral corruption persisted well into the 20th century in local elections. In the US, public officials were often used for party political campaigns (including being forced to donate for electoral campaign funds).

"A bribe is a transfer of wealth from one person to another. It does not necessarily have negative effects on economic efficiency and growth...Whether or not the income transfer due to corruption results in a more (or less) productive use of the money paid out as bribes, corruption can create a variety of economic problems by 'distorting' government decisions...Corruption may also 'distort government decisions by hampering regulation...'

"...if the regulation was an 'unnecessary'one, corruption may increase economic efficiency... it has often been argued that bribery may enhance the economic efficiency of an over-regulated economy by re-introducing market forces, if through illegal means. This is what the American veteran political scientist Samuel Huntington meant in his classic passage: 'In terms of economic growth, the only thing worse than a society with a rigid, over-centralized dishonest bureaucracy is one with a rigid, over-centralized honest bureaucracy'.

"So the economic consequences of corruption depend on which decision the corrupt act affects, how the bribes are used by the recipients and what would have been done with the money had there been no corruption. I could have also talked about things like predictability of corruption (e.g. is there a 'fixed price' for a certain kind of 'service' by the corrupt official?) or the degree of 'monopoly' in the bribery market (e.g. how many people do you have to bribe to get a licence?). But the point is that the combined result of all these factors is difficult to predict. This is why we observe such vast differences across countries in terms of the relationship between corruption and economic performance."

Prosperity and honesty

"If the impact of corruption on economic development is ambiguous, how about the latter's impact on the former? My answer is that economic development makes it easier to reduce corruption, but that there is no automatic relationship. Quite a lot depends on the conscious efforts made to reduce corruption.

"Economic activities in developing countries are mostly dispersed across a large number of small units (e.g., small peasant farms, corner shops, hawkers' stalls and backyard workshops). This provides a fertile ground for petty corruption, which may be too numerous to detect for under-resourced developing country governments.

"With better living conditions, people can achieve higher behavioural standards. Economic developments also increases the capacity of government to collect taxes -as economic activities become more 'visible' and as government administrative capacity rises. This, in turn, allows it to increase public salaries, expand the welfare state and spend more resources on detecting and punishing malfeasance among officials- all of which help reduce corruption.

"Having said all this, it is important to point out that economic development does not automatically create a more honest society."

Too many market forces

"The Bad Samaritans, basing their argument on neo-liberal economics, say that the best way to tackle corruption is to introduce more market forces into both the private and public sectors -a solution that neatly dovetails into their market-fundamentalist economic programme. They argue that freeing the market forces in the private sector - that is, deregulation - will not only increase economic efficiency but also reduce corruption by depriving politicians and bureaucrats of the very powers to allocate resources that give them the ability to extract bribes in the first place. In addition, the Bad Samaritans have implemented measures based on the so-called New Public Management (NPM), which tries to increase administrative efficiency to reduce corruption by introducing more market forces into the government itself - more frequent contracting out, a more active use of performance-related pay and short-term contracts and a more active exchange of personnel between the public and the private sectors.

"... The increased flow of people between the public and private sectors has had an even more insidious effect. Once lucrative private-sector employment becomes a possibility, public officials may be tempted to befriend future employers by bending, or even breaking the rules for them. They may do this even without being paid for it right away. With no money changing hands, no law has been broken (and, therefore, no corruption has occurred) and, at most, the official can be accused of bad judgement. but the payoff is in the future.

"...Private sector crookedness is often ignored in the economic literature because corruption is usually 'defined' as the abuse of public office for personal gain. But dishonesty exists in the private sector too. Financial deregulation and relaxation of accounting standards have led to insider trading and false accounting even in rich nations... Deregulation can also increase the power of private-sector monopolies, which expands the opportunities for their unscrupulous purchasing managers to take bribes from sub-contractors.

"Corruption often exists because there are too many market forces not too few. Corrupt countries have shadow markets in the wrong things, such as government contracts, jobs and licences. Indeed, it is only after they made the sale of things like government offices illegal that today's rich countries could significantly reduce profiteering through the abuse of public office. Unleashing more market forces through deregulation, as the neo-liberal orthodoxy constantly pushes for, may worsen the situation. This is why corruption has often increased, rather than decreased, in many developing countries following the liberalization pushed by the Bad Samaritans.

Democracy and the free market

"Some (Bad Samaritans) suggest that democracy is essential for economic development, as it protects citizens from arbitrary expropriation by the rulers; without such protection, there will be no incentive to accumulate wealth..."

"Others think that democracy may be sacrificed if it becomes necessary in defence of a free market, as evidenced by the strong support offered by some neo-liberal economists to the Pinochet dictatorship in Chile. Still others think that democracy will naturally develop once the economy develops (which, of course, can be best achieved by free trade, free-market policies), because it will produce an educated middle class that naturally wants democracy. Yet others sing the praises of democracy all the time but keep quiet when the undemocratic country in question is a 'friend'..."

"...there is a strong consensus among neo-liberals that democracy and economic development reinforce each other... what distinguishes them (neo-liberals) is their belief that this relationship is mainly, if not exclusively, mediated by the (free) market. They argue that democracy promotes free markets, which, in turn, promote economic development, which then promotes democracy: 'The market underpins democracy, just as democracy should normally strengthen the market', writes Martin Wolf, the British financial journalist, in his renowned book, 'Why Globalisation Works'.

"...under democracy, the predatory behaviour of the government is restrained and thus free markets can flourish, promoting economic development. In turn, free markets promote democracy because they lead to economic development, which produces wealth-holders independent of the government, who will demand a mechanism through which they can counter the arbitrary actions of the politicians-democracy.

"... can we at least say that democracy and (free) markets are, indeed, natural partners and reinforce each other?

"The answer is no. Unlike what the neo-liberals say, market and democracy clash at a fundamental level. Democracy runs on the principle of 'one man (one person), one vote'. The market runs on the principle of 'one dollar, one vote'.

"...most 19th century liberals opposed democracy because they thought it 'was not'compatible with a free market. They argued that democracy would allow the poor majority to introduce policies that would exploit the rich minority (e.g., a progressive income tax, nationalization of private property), thus destroying the incentive for wealth creation.

"Influenced by such thinking, all of today's rich countries initially gave voting rights to those who owned more than a certain amount of property or earned enough income to pay more than a certain amount of tax..."

"...The economic qualification for suffrage was, then, the flip side of the famous colonial American slogan against the British, 'no taxation without representation'- there was also to be 'no representation without taxation'.

"...Under communism, total rejection of the 'one dollar, one vote'principle not only created economic inefficiency but also propagated inequities based on other criteria - political power, personal connections or ideological credentials. It should also be noted that money can be a greater leveller. It can work as a powerful solvent of undesirable prejudices against people of particular races, social castes or occupational groups.

"Democracy and markets are both fundamental building blocks for a decent society. But they clash at a fundamental level. We need to balance them. When we add the fact that free markets are not good at promoting economic development, it is difficult to say that there is a virtuous circle between democracy, the free market and economic development, contrary to what Bad Samaritans argue."

When democracies undermine democracy

"...The Bad Samaritans have recommended policies that actively seek to undermine democracy in developing countries (although they would never put them in those terms).

"The argument starts reasonably enough. Neo-liberal economists worry that politics open the door for perversions of market rationality: inefficient firms or farmers may lobby the parliamentarians to get tariffs and subsidies, imposing costs on the rest of the society that has to buy expensive domestic products; populist politicians may put pressure on the central bank to 'print money' in time for election campaign, which causes inflation and hurts people in the longer run. So far, so good.

"The neo-liberal solution to this problem is to 'depoliticize' the economy. They argue that the very scope of government should be reduce - through privatization and liberalization - to a minimal state.

"For developing countries it is seen as particularly important to sign up to international agreements - for example, the WTO agreements, bilateral/regional free trade agreements or investments agreements - because their leaders are less responsible and thus more likely to stray from the righteous path of neo-liberal policy.

"... in pushing for the depoliticization of the economy, the Bad Samaritans are undermining democracy. Depoliticization of policy decisions in a democratic polity means - let's not mince our words - weakening democracy. If all the really important decisions are taken away from democratically elected governments and put in the hands of unelected technocrats in the 'politically independent'agencies, what is the point of having democracy? In other words, democracy is acceptable to neo-liberals only in so far as it does not contradict the free market; this is why some of them saw no contradiction between supporting the Pinochet dictatorship and praising democracy. To put it bluntly, they want democracy only if it is largely powerless - like the title of the book published is (sic) 1987 by Ken Livingstone, the current left-wing major of London, 'If Voting Changed Anything They'd Abolish It.

"...neo-liberals live in an era when they cannot openly oppose democracy, so they try to do it by discrediting 'politics' in general. By discrediting politics in general, they gain legitimacy for their actions that take away decision powers from the democratically elected representatives. In doing so, neo-liberals have succeeded in diminishing the scope of democratic control without openly criticizing democracy itself."

Democracy and economic development

"...given the fundamental tension between democracy and market, it is unlikely that democracy will promote economic development through promoting the free market. Indeed, the old liberals feared that democracy may discourage investment and thus growth (e.g., excessive taxation, nationalization of enterprises). On the other hand, democracy may promote development through other channels...Contrary to the popular perception, a well-designed welfare state, especially if combined with a good retraining programme can reduce the cost of unemployment to the workers and thus make them less resistant to automation that raises productivity (it is not a coincidence that Sweden has the world's highest number of industrial robots per worker).

"...there is no systematic evidence either for or against the proposition that democracy helps economic development. Studies that have tried to identify statistical regularities across countries in terms of the relationship between democracy and economic growth have failed to come up with a systematic result either way.

"...we don't need to show that democracy positively affects economic growth in order to be able to support it. As Amartya Sen, the Nobel Laureate economist, argues, democracy has an intrinsic value and should be a criterion in any reasonable definition of development. Democracy contributes to building a decent society by making certain things immune to the 'one dollar, one vote' rule of the market - public offices, judicial decisions, educational qualifications... Participation in democratic political processes has intrinsic values that may not be easily translated into monetary value... even if democracy negatively affected economic growh, we may still support it for its intrinsic values.

"If the impact of democracy on development is ambiguous, the impact of economic development on democracy seems more straight-forward. It seems fairly safe to say that, in the long run, economic development brings democracy. But this broad picture should not be obscure the fact that some countries have sustained democracy from when they are fairly poor, while many others have not become democracies until they are very rich. Without people actually fighting for it democracy does not automatically grow out of economic prosperity.

"Only in 1965 did the Southern states in the US allow the African Americans to vote, thanks to the civil rights movement led by people like Martin Luther King, Jr."

Politics and economic development

"Corruption and lack of democracy are big problems in many developing countries. But the relationships between them and economic development are far more complex than the Bad Samaritans suggest...When it comes to democracy, the neo-liberal view that democracy promotes a free market, which, in turn, promotes economic development, is highly problematic. There is a strong tension between democracy and a free market, while a free market is unlikely to promote economic development.

"...the Bad Samaritans have recommended in these areas have not solved the problems of corruption and lack of democracy. In fact, they often made them worse. Deregulation of the economy in general, and the introduction of greater market forces in the management of the government more specifically, has often increased, rather than reduced, corruption."